Investment Club Portfolio and Returns

Posted by Madison on March 26, 2008

After I wrote how to start an investment club, readers wanted to know more about our investment club portfolio and returns. With the permission from the club members, here is what our portfolio and returns look like at Scottrade, in addition to more information about how the club works.

Our Returns

Investment Club Returns

MITBeta: So how has that worked out for you?

Well you can see that we finally beat our benchmark in 2007. It probably took us at least the first few years to go through all the information on how to run the club, what to evaluate and how to manage the portfolio. We had many members who didn’t know anything about investing in the beginning. During 2006 we became very focused on diversification of the portfolio. You can see that in the last year we’re nearing our target and beat our benchmark for the first time.

Mike: Isn’t doubling your money every five years a very aggressive goal?

Yes, Mike, it is very aggressive. Although, if we were willing to settle for something less, we could probably just invest in index funds. In addition, the goal has served as a very valuable educational benchmark. It makes it much easier to evaluate companies. If we don’t calculate the returns at or above 15% we can eliminate the company from our research.

How it Works

No Debt Plan: Are you investing individually, or does everyone pool money together into one account?

The money is pooled together, but each person’s contributions are tracked at a unit level. It’s similar to owning shares in a mutual fund. Each month a valuation of the club holdings are calculated and a unit value is computed. Each person’s account is updated with the additional units purchased.

At the end of the year, we close out the books and distribute the gains (and losses) to individuals. Each member is issued a K-1 to report their earnings on their individual taxes. In addition, an audit is performed yearly to verify the accounting.

Our Portfolio

Dan: Please post some of your club’s favorite holdings.

We try to balance across market capitalization and across sectors.

Here is our current portfolio:

This article is featured in: Welcome to the Carnival of Money Stories #53 – April Fool’s Edition.





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Comments to Investment Club Portfolio and Returns

  1. Thanks for answering the comment!!

    I hate to say it but your chart is a really good argument for passive investment. Hopefully 2007 is the start of a good run for you guys.

    Do have the average annual performance numbers compared to VTI?

    Four Pillars

  2. I’m going to have to look into starting one of these clubs. Thanks for sharing the information.

    Ron@TheWisdomJournal

  3. As much as I hate to say this, I agree with the first poster. You didn’t post the exact percentage per year, so I had to guesstimate it based on the chart, and it appears as if your club brought you a 35% return on the initial investment over the course of 5 years, or an average of 7% per year, which is pretty much the same you’d get if you kept reinvesting with 4-week T-bonds at the current interest rate…

    While I truly admire your initiative, I cannot begin to imagine how much time and resources you and your fellow investors spent on your enterprise. Why not entrust your money to somebody who has been investing for decades – somebody with a history of success? I’ll have to admit that I’m trying to shamelessly advocate Warren Buffett and his Berkshire Hathaway, but his record is perfect, and the BRK.B more than doubled in value over the past 5 years… All one needs to do is buy a share or two, sit back and relax. 🙂

    GL

  4. @ Four Pillars and GL: You hit the nail on the head! This is a perfect example why trying to beat index funds doesn’t happen.

    We have spent many hours on the club, however, there are some benefits that you don’t see. One is the large portion of our meeting that is devoted to eduction. We spend a lot of time learning about saving, investing and personal finance in general that can be applied to our other investments.

    For very good reason, the investment club is less than 2% of our entire portfolio. I consider it somewhat of my “fun money”.

    I completely agree that passive investing is the way to go. I’ll look up the exact percentages since you can’t really tell from the graph and post them. I’ll also look at VTI.

    GL, funny you should mention the BRK.B shares. I’ve had that on my list to evaluate forever!

    I’m thinking maybe another article to follow this up with some of these points would be in order. Thanks for holding me accountable!

    Madison

  5. Oh, OK – I was worried that it was your main investment. 🙂

    And great minds think alike – in my opinion, BRK.B is the best and most reliable investment a low-ball investor can make. 😀 It’s at a relatively low price right now (~$4,200 – down from $4,900) and might go even lower, since quite a few of Berkshire’s assets lie with insurance companies. In other words, now is the perfect time to buy. 😉

    GL

  6. The best and most reliable investment a low-ball investor can make is in a total stock market index fund. T. Rowe Price will let you buy into one for as little as $50 if you commit to continuing to put $50 in a month. It will take many people A LONG time to save enough to buy even one share of BRK. B.

    With that said, I’m saving to buy one share. 😀

    I’m so glad to hear that this investment is a very small part of your portfolio. I recently started a personal finance discussion group and have thoughts of someday turning it into an investment group to invest some money AFTER retirement savings, etc. are properly funded and allocated. Good luck!

    MITBeta @ Don’t Feed The Alligators

  7. A long time ago several friends of mine and I decided to start an investment club. We never implemented our project though, because everyone of us had a different strategy and noone was willing to submit to a different strategy. Thus I admire the accomplishment of getting different individuals to have a similar goal.
    On the other hand though I don’t think that an investment club is a rational way to invest. If you ever check statistics for investor performance you will find out that it actually pays to go against the majority as opposed to go with the majority. Unfortunately your results so far confirm this statement.
    On the other hand though I think that educating people on financial matters is truly priceless, so as long as you don’t invest more than 1-2 % of your net worth in this club, you should be ok.

    Dividend growth investor

  8. @MITBeta and DGI: I’m actually a huge fan of of the total market approach. Here’s what the rest of our portfolio looks like: My Asset Allocation: Total Market Approach. I think you’ll both feel better when you see it.

    Madison

  9. Thanks for the info.

    The reporting of gains or losses on the individuals’ tax returns is still unclear to me.

    Since the primary business activity is investment, is it reported as earned income? Or, is it simply reported as capital gains, dividends, etc.?

    Peter

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